David Cameron holds video call with European leaders over financial crisis

David Cameron will this afternoon hold a video conference call with other
European leaders as concern mounts over the Greek elections this weekend.

The Prime Minister will speak with Angela Merkel, the German Chancellor, Francois Hollande, the French President and other key European leaders.

They are expected to discuss the growing eurozone crisis ahead of elections this weekend in Greece which may lead to the country being forced out of the single currency.

The leaders are all due to travel to the G20 summit for world leaders in Mexico next week where Mrs Merkel is expected to come under intense pressure to step up German support for beleaguered European nations.

Mr Cameron’s official spokesman said the call was a long-scheduled opportunity for the leaders to discuss the issues on the G20 agenda.

Asked about the Greek elections - triggered by the failure to form a government in Athens after polls last month – the Prime Minister’s official spokesman said: “It is a matter for the Greek people and clearly they have to go through their democratic processes.

“But we need to see an end to the uncertainty which is damaging the European economy and damaging our economy.”

He added: “We need to see action to deal with the problems in the eurozone sooner rather than later.

“The Prime Minister has talked on a number of occasions of the chilling effect the situation in the eurozone is having on our economy and the global economy.”

The international discussions come after the Treasury and Bank of England unveiled a £140 billion scheme to kickstart the British economy by offering funding to banks for mortgages and business loans.

Banks said they are "ready and willing" to get behind the multi-billion pound scheme to prevent a second credit crunch but City and industry experts warned today there is no guarantee the plan will boost lending.

The coordinated action by the Bank of England and Treasury will see billions offered to banks on condition they pass it on to businesses and households in the form of cheaper loans and mortgages.

The scheme, which is due to start in the next few weeks, has received a cautious welcome while bank shares were up by as much as 6 per cent today.

However, there were warnings that the scheme will not address the core problem of companies' reluctance to borrow, particularly in the face of a eurozone debt storm that could deepen this weekend following the Greek elections.

Graeme Leach, chief economist at the Institute of Directors, said: "The funding for lending scheme helps the supply of money and the demand for it, by lowering the cost of borrowing.

"But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow, regardless of the cost."

And economists cautioned that banks may simply not want to lend more, even with the carrot of cheaper funding.

Vicky Redwood of Capital Economics said: "High bank funding costs are just one challenge facing the UK economy. Indeed, these moves on their own will do little to reduce the effect of the eurozone crisis on UK exports or reduce the uncertainty facing UK companies."

In his annual Mansion House speech, Bank governor Sir Mervyn King also activated facilities for an emergency scheme that offers six-month liquidity to banks in tranches of at least £5 billion a month.

The two measures are estimated to be worth £140 billion over the next year in funding to banks.

The banking industry has been hit by higher funding costs as the eurozone troubles have escalated and have been hoarding money for fear of another worrying phase in the crisis.

The British Bankers' Association (BBA) said it was "ready and willing" to get behind the moves.

BBA chief executive Angela Knight said the industry welcomed the news that the Bank and Government were "ready to stand with the financial sector in making more money available to fuel the recovery".

Experts also hailed signs that the Bank stood ready to further expand its quantitative easing programme, which currently stands at £325 billion.

Alan Clarke, economist at Scotiabank, said the announcements "come at a crucial time" ahead of the Greek elections, which are being seen as a referendum on the country's future in the euro.

"The Bank has hinted that it has contingency plans in the event of disaster, but has now started to flex its muscles and show that it means business," he added.

However, he cautioned incentives for banks to loan needed to be well thought out: "Past schemes have been conditional on banks increasing their loan books, but we have hardly seen a dramatic rebound in lending. We need to hope that the incentive structure is better designed in this scheme."

The moves follow mounting pleas for action from the Bank and Treasury to do more to help banks and steer the UK economy through the eurozone crisis.

The Bank's QE programme and efforts to keep interest rates at record lows of 0.5 per cent have failed so far to prevent credit from tightening amid the eurozone woes.

Shadow Chancellor Ed Balls was critical of the proposals last night, saying they "do not go far enough". l

Shares in Britain’s largest banks were among the biggest risers this morning as the market gave a cautious thumbs up to the government’s plans to provide £140bn of emergency funding to support the economy.

Royal Bank of Scotland's shares jumped more than 7pc in early trading to 246.7p, while Barclays rose a little over 5pc to 203p as investors digested the impact of George Osborne’s announcement last night of a scheme to provide low-cost funding to Britain’s largest lenders.

Britain’s largest retail bank, Lloyds, saw its share price rise 4.7pc to 31.2p and HSBC, the largest UK bank by market capitalisation, recorded a 2.3pc increase to 558p, as they also benefited from the renewed investor confidence in bank shares.

The sharp rise in bank shares drove the FTSE 100 up 0.8pc to 5510 points in early trading.

The Bank of England’s new External Collateral Term Repo (ECTR) will see the central bank pump a minimum of £5bn every month into the banks in the form of six-months loans.

Unlike previous bank funding schemes, the ECTR will allow lenders to offer a far wider pool of collateral against the loans, in a step intended to improve their attractiveness.

Combined with this, the Bank of England and the Treasury will also launch a “Funding for Lending” programme that will see the authorities provide cheap loans to the banks in return for them making more new lending available to small businesses.

The scheme is an expansion of the government’s existing Credit Easing programme and is designed to push banks to lend more to struggling businesses that are finding it hard to secure credit from lenders.

Mark Hoban, the Financial Sectretary to the Treasury, said on BBC Radio 4's Today programme on Friday that if there was 5 per cent take up of the scheme, then loans would total £80bn.

He said the message for businesses from the emergency funding scheme was: "Finance is available at a price they can afford."

Analyst at Citigroup warned the schemes were unlikely to be enough to “fully insulate” the economy from the eurozone crisis, saying they did nothing to solve the continuing problem of high private indebtedness and the government’s “tight fiscal policy”.